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Canadian Class Actions Monitor

Uncertain Implications for Global Class Certification: The Ontario Court of Appeal’s Decision in Excalibur Special Opportunities

Posted in Class Actions
Paul DavisBrandon Mattalo

In December 2016, the Ontario Court of Appeal had an opportunity to clarify the requirements for certifying a global class in Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP.[1] In a series of decisions over three levels of court, Ontario judges adopted shifting analyses of the global class issue, and a majority of the Court of Appeal appears to have further complicated the law on this issue by using language which suggests that it applied the conventional test for assumed jurisdiction over an individual action to the separate issue of whether to certify a global class. With a strong dissent, the law is ripe for further development in the future.

American Investors Rely on a Canadian Audit Report about a Chinese Hog Farm

Excalibur Special Opportunities LP (“Excalibur”), a Toronto-based partnership, was one of fifty seven investors in a Nevada corporation that owned and operated hog farms in China. In addition to Excalibur, only one other investor was based in Canada (in British Columbia). The vast majority (50 of 57) of the investors were based in the United States. Excalibur and the other investors allegedly relied on an audit report prepared by a Toronto and Montreal-based accounting firm, Schwarts Levitsky Feldman LLP (“SLF”), when deciding to invest.

After certain American securities disclosures, the investors lost all of their money. Excalibur sought to certify a global class action against SLF in Ontario for negligence and negligent misrepresentation for alleged false statements contained in the audit report on which they allegedly relied to invest.

The Motion Judge Denies Certification and the Divisional Court Agrees

At first instance, Perell J. denied Excalibur’s motion for certification. After canvassing the law on certification of global classes,[2] Perell J. outlined several factors that, in his view, ought to be considered when determining whether it is appropriate to certify a global class:

  1. whether the Ontario court has jurisdiction simpliciter over the defendant;
  2. whether the Ontario court can assume jurisdiction over a non-resident Class Member, which largely depends upon whether Ontario has a real and substantial connection with the subject matter of the claim and on principles of order and fairness and comity;
  3. whether it would be reasonable for the non-resident Class Member to expect that his or her rights would be determined by a foreign court;
  4. whether the non-resident plaintiff can be accorded procedural fairness, including adequate notice and a meaningful opportunity to opt-out; and
  5. the likely enforceability of the Ontario judgment in the non-residents’ local courts.[1]

Justice Perell refused to certify the class because the action did not, in his view, have a real and substantial connection to Ontario. Ninety-eight percent of the investors were non-residents, making investments in American dollars in an American transaction governed by American corporate and securities law. Justice Perell therefore concluded that the identifiable class criterion was not satisfied.[1]

Excalibur appealed Perell J.’s decision to the Divisional Court.[2] Lederer J., writing for the majority, did not find any errors of fact or law in his refusal to certify a global class and accordingly dismissed the appeal.[3]

In dissent, Sachs J. disagreed. She reviewed the law following from the Supreme Court’s decision in Club Resorts Ltd. v. Van Breda, which established four presumptive connecting factors to resolve the question of whether the court may assume jurisdiction in tort cases.[4] She observed that three of them were present – the defendant was resident in Ontario, carried on business in the province and, on the claim as pleaded, committed the tort of negligent misrepresentation in the province. Since there were factors presumptively connecting the claim to Ontario, Sachs J.’s view was that SLF had the onus to establish that another jurisdiction was clearly more appropriate and Ontario was therefore forum non conveniens.[5] It had not done so. Finally, she concluded that there were no procedural or fairness issues that would inhibit certifying the global class.

The Court of Appeal Certifies the Global Class

Excalibur sought, and was granted, leave to appeal to the Ontario Court of Appeal. Like the Divisional Court, the Court of Appeal was divided.

Justice MacFarland, writing for the majority[6] held that Perell J. erred by failing to find a real and substantial connection between Ontario and the subject matter of the dispute.[7] She also concluded that it was an error in law for the motion judge to consider the reasonable expectations of the non-resident class members in determining whether to take jurisdiction in a global class proceeding,[8] and that he erred in exercising “restraint” when applying the real and substantial connection test.[9]

Justice MacFarland agreed with Sachs J.’s dissent at the Divisional Court that the critical question was whether the court had jurisdiction over the dispute in accordance with the principles in Van Breda. Given that three of the four presumptive connecting factors were present on the claim and the defendant had failed to rebut the presumption of jurisdiction or show that Ontario was forum non conveniens, she certified the global class.[10]

Justice Blair dissented. In his view, Perell J. did not make any errors in refusing to certify the global class and deference ought to be shown to his conclusion. Justice Blair reasoned that the majority and Sachs J.’s dissent had placed undue emphasis on Perell J.’s use of the language of “real and substantial connection”, because there was never a real dispute about whether the Ontario courts had jurisdiction simpliciter over the representative plaintiff’s claim against the defendant. Instead, in his view, Perell J. used the words “real and substantial connection” to determine whether the court “should, not whether it could assume jurisdiction over a global class”. It was in this context that Perell J. considered whether it would be reasonable for the non-resident class member to expect that his or her rights would be determined by a foreign court.[11] Justice Blair accepted that it was appropriate for him to exercise restraint in assuming jurisdiction over a matter with a foreign element.[12]

Implications

The Ontario Court of Appeal’s two sets of reasons have the potential to create uncertainty for the issue of global class certification in the future. Justice Blair identified the heart of the problem in his dissenting reasons: the majority of the Court – and Sachs J. at the Divisional Court – stopped after determining that Ontario had jurisdiction over Excalibur’s claim against SLF. In other words, those judges applied the framework from Van Breda to resolve the distinct question of whether the court ought to certify a global class. However, as Blair J.A. pointed out, and Perell J. implicitly emphasized, the narrow question of jurisdiction pertaining to the representative plaintiff’s claim against the defendant should not be the only inquiry in deciding whether to marshal the resources of the Ontario court on behalf of a global class of persons, many of whom may know nothing of the proceeding and receive no notice of its progress.

Nonetheless, Blair J.A. also used language that has the potential to create confusion in future cases. Justice Blair explained:

In the post-Club Resorts Ltd. v. Van Breda, 2012 SCC 17, [2012] 1 S.C.R. 572 era, “real and substantial connection” has a particular connotation. Where one or more of the four presumptive factors outlined by the Supreme Court of Canada in that case are established, a real and substantial connection between the jurisdiction and the subject matter of the proceeding – the hallmark of a court’s competence to assume jurisdiction over a case with a foreign element – is presumed to exist and the court acquires jurisdiction simpliciter. That is not the end of the matter, however. The presumptive factors may be rebutted, and, even if they are not, the court may still go on to consider whether, in spite of the fact that it has jurisdiction, it should take the next step and assume jurisdiction over the foreign element in the proceeding. [Emphasis in original.]

Justice Blair’s language of “assum[ing] jurisdiction” in this context is unfortunate because the Supreme Court in Van Breda was deciding precisely the test for when a court should “assume jurisdiction”. Assumed jurisdiction is one of three traditional common law bases for a court’s jurisdiction (together with a defendant’s presence in the jurisdiction or the parties’ consent to the court’s jurisdiction).[13] Although Blair J.A.’s language may be open to question, the core notion that jurisdiction is merely the first step in the analysis of global class certification seems persuasive. Otherwise, any plaintiff with an individual claim over which an Ontario court may assume jurisdiction would be entitled to certification of a global class, if the other certification criteria are met. The majority of the Court of Appeal’s reasoning appears to open the door to this far-reaching and presumably unintended consequence.

[1] 2016 ONCA 916 (“Excalibur OCA”).

[2] 2014 ONSC 4118 at para. 110 (“Excalibur motion”).

[3] Ibid at paras. 111 and 118.

[4] Ibid at paras. 148-151. Justice Perell also determined that a class proceeding was not the preferable procedure for resolving the issues in dispute. That issue was appealed at both levels of court and ultimately the Court of Appeal accepted that this criterion for certification was met. Although the Court’s comments on preferability may be of interest in future cases, they are beyond the scope of this post.

[5] 2015 ONSC 1634 (“Excalibur Div. Ct.”).

[6] Ibid at para. 36.

[7] Club Resorts Ltd. v. Van Breda, 2012 SCC 17 at para. 90.

[8] Excalibur Div. Ct., at para. 73.

[9] Cronk J.A. concurring.

[10] Excalibur OCA, at paras. 22-46

[11] Ibid at paras 30 – 31.

[12] Ibid at paras. 30 and 33.

[13] Ibid at paras. 40-41.

[14] Ibid at para. 81.

[15] Ibid at paras. 85 – 89.

[16] Chevron Corp. v. Yaiguaje, 2015 SCC 69 at para. 84; Muscutt v. Courcelles (2002), 60 O.R. (3d) 20 (C.A.).